If calculating the Luxury Car Tax has you confused, you’re not alone. David Bonnici takes some time to break down when the LCT applies on new vehicle purchases and how it’s calculated

The new financial year means the Luxury Car Tax threshold has gone up. However, the rise is almost as small as most people’s understanding of the controversial levy. We can’t fix the former but we can increase your understanding of all things LCT.

What is the Luxury Car Tax?

The Australian Tax Office (ATO) describes the Luxury Car Tax (LCT) as a tax on cars with a GST-inclusive value above the LCT threshold.

That makes no sense.

OK, in other words, a car less than two years old with a GST-inclusive price tag above a certain value will attract an LCT of 33 percent.

Does it only apply to luxury cars?

No, it’s purely about price, not how soft the seats are. In short; it’s a car sold by a registered car dealer valued above the threshold. In fact some cars you’d consider to be luxury ­- the Mercedes C-200 Coupe for instance – don’t attract LCT because they’re priced under the threshold.

Does it apply to Australian-built cars?

Yes, if they’re valued above the threshold.

What is the threshold?

The threshold is indexed and goes up a little bit every financial year. For 2016-17 it is $64,132, however for fuel efficient cars with a combined economy rating of 7L/100km or better, the LCT doesn’t kick in until $75,526 (which is why quite a few European ‘luxury’ cars are exempt).

Thankfully, no. The LCT is charged on the amount over the threshold, not the entire price of the car. So if you’re buying a car that drinks 9L/100km for $72,000, the LCT applies to the $7868 over the $64,132 threshold.

That seems pretty simple.

Kind of. There’s also the matter of GST which has to be factored in, so it’s not as simple as charging 33 percent on the difference. It’s also worth noting that the LCT is charged to the seller not the buyer, but they will invariably pass it on to the buyer.

So, if Joe Bloggs Motors sells that $72,000 car, it must pay the LCT to the ATO.

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